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Bring-forward measures and 6-member SMSF bill passes Parliament

The measures to extend the bring-forward age up to 67 and the bill to increase the number of members allowed in an SMSF have passed both houses of Parliament.

On Thursday, both the Treasury Laws Amendment (Self-Managed Superannuation Funds) Bill 2020 and the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 passed through the House of Representatives and the Senate.   

The bring-forward measures will amend the Income Tax Assessment Act 1997 to enable individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.

Previously, members under age 65 at any time in a financial year may effectively bring forward up to two years’ worth of non-concessional cap for that income year, allowing them to contribute a greater amount up to $300,000 without exceeding their non-concessional cap.

This is known as the “bring-forward rule”. The number of years that may be brought forward into the current financial year is determined by the member’s total superannuation balance at 30 June 2019.

This bill would amend sub-section 292-85(3)(c) of the Income Tax Assessment Act 1997 to allow the bring-forward rule to be used by members under age 67 at any time in a financial year. This amendment would be effective from 1 July 2020 onwards.

This initiative is implemented through three changes where the age at which the work test starts to apply for voluntary concessional and non-concessional superannuation contributions is increased from 65 to 67, the cut-off age for spouse contributions is increased from 70 to 75 and enabling individuals aged 65 and 66 to make up to three years of non-concessional superannuation contributions under the bring-forward rule.

Upon passing the bill, the government had also agreed to two One Nation amendments.

Amendments made by Pauline Hanson’s One Nation party included the removal of excess concessional contributions charge from 1 July 2021 and no deductions for recontributions of amounts withdrawn under COVID-19 early release, where recontribution is made from 1 July 2021 to 30 June 2030.

The removal of excess concessional contributions charge removes the application of an excess concessional contribution charge that applies to any additional tax liabilities that arise due to a member exceeding their concessional contributions in a year, according to Colonial FirstTech.

Meanwhile the re-contribution of COVID 19 early release amounts, would allow a member that released amounts from superannuation under the COVID 19 early release rules to recontribute those amounts without counting towards the non-concessional cap. The amendment also confirmed they cannot be claimed as a tax deduction.

CPA Australia external affairs manager Jane Rennie said allowing members to re-contribute COVID-released super savings will help restore their long-term financial security and mean they are less dependent on government support in retirement.

Another proposed amendment would also increase the cap at which a 15 per cent concessional tax rate applies to superannuation contributions by $5,000 to $32,500 for people aged 67. The cap then increases by $5,000 a year each year until a person turns 71, however this proposal was rejected by the government.

Meanwhile, the six-member bill amends the SIS ActCorporations ActITAA 1997 and SUMLMA to increase the maximum number of allowable members in SMSFs from four to six. This bill also amends provisions that relate to SMSFs and small APRA funds.

These amendments ensure continued alignment with the increased maximum number of members for SMSFs.

The Government said increasing the allowable size of these funds increases choice and flexibility for members. SMSFs are often used by families as a vehicle for controlling their own superannuation savings and investment strategies.

For families with more than four members, currently the only real options are to create two SMSFs (which would incur extra costs) or place their superannuation in a large fund. This change will help large families to include all their family members in their SMSF.

The SMSF Association in its Twitter update that whilst it doesn’t expect this change will lead to a significant increase in the number of SMSFs being established, it will provide greater investment flexibility, choice and lower fees for those in a position to utilise it.

The expansion of members creates different strategic considerations that can be both positive and negative for SMSFs, and preparation will be needed to see if the changes will be a good fit for the SMSF, according to technical specialists.

The amendments apply from the start of the first quarter that commences after the act receives royal assent.

Source: SMSF Adviser

End-of-financial-year essentials for SMSF trustees

As the end of the financial year approaches, it is a good time for trustees to do an annual check-up on their Self-Managed Super Fund.

Here are five key issues to be aware of in the 2020-21 tax year.

Contributions

Non-concessional (after-tax) contributions are limited to $100,000 (or a maximum of $300,000 if you satisfy the non-concessional contributions bring-forward rule) and concessional (before-tax) contributions are limited to $25,000. These limits will be indexed on July 1 and increase to $110,000 for non-concessional contributions ($330,000 under bring-forward rule) and $27,500 for concessional contributions.

The non-concessional contributions bring-forward thresholds do not increase if you have already triggered a bring-forward period that has not ended by June 30.

To make sure you do not accidentally trigger the bring-forward arrangement, you need to consider all your non-concessional contributions made to all your superannuation funds. Unreleased excess concessional contributions also count towards the non-concessional contributions cap.

Before June 30, it is important to review contribution strategies to ensure you have contributed what you intended to, and ensure you are below the contribution caps.

In the 2020-21 financial year you may also be eligible, subject to your Total Super Balance (TSB), to make larger concessional contributions – if you have any unused concessional contribution cap space from the 2018-19 or later financial years.

Where you have made personal contributions and intend to claim a tax deduction in 2020-21, it is important that you check all employer contributions and salary sacrificed amounts to super to make sure you do not breach the annual concessional contributions cap.

Investment strategy

It is important to understand that an SMSF’s investment objectives and strategy are not set in stone.

Trustees should regularly review the investments of the fund, investment risk, likely returns, liquidity, insurance and cash flow requirements as well as the diversification of investments.

Before any investment decision is made, you should examine the impact it would likely have on the overall portfolio, to ensure you are investing in line with your investment strategy.

Minimum pension payments

To help manage the economic impact of the coronavirus pandemic, for the 2019-20, 2020-21 and 2021-22 tax years, the federal government has reduced the minimum drawdown requirements by half for account-based pensions and market-linked pensions. There is still time to consider and, if required, amend your pension payments for 2020-21.

Where you have continued to receive regular pension payments, it is likely you may have received more than the required minimum amount. Unless you meet contribution eligibility rules, these funds cannot be returned.

Where you have restructured your pension withdrawal amounts, it is important to ensure that you do not underpay the minimum pension payment required. Where this requirement is not met, a SMSF may be subject to 15 per cent tax on pension investments, instead of them being tax free.

Valuing assets

SMSF trustees are required to value the fund’s assets at market value on June 30 each year when preparing the fund’s financial accounts.

Ensuring that member benefits are shown at market value is important when calculating each member’s TSB. This number is used to determine what, if any, non-concessional contributions can be made without exceeding your non-concessional contributions cap, and when determining your eligibility to make catch-up concessional contributions and receive government co-contributions.

If you are starting a pension, it is important to value your pension balance correctly to ensure you do not begin a pension with a balance exceeding the Transfer Balance Cap. For the 2020-21 income year, this cap is $1.6 million and will increase to $1.7 million on July 1, in line with indexation.

Lodgement obligations

All SMSF trustees are expected to work with their tax agent or accountant to ensure that they meet all their lodgement requirements on time.

While the current economic conditions due to COVID-19 may make keeping up to date with your trustee obligations a challenge, access to the ATO’s early engagement and voluntary disclosure service is available to assist you to get your affairs in order.

Missing your annual return lodgement due date could result in the status of your SMSF changing on the ATO’s Super Fund Lookup, which could restrict your SMSF from receiving super guarantee payments, as well as some rollovers.

Written by John Maroney, CEO, SMSF Association

Pension drawdown rate to remain halved for next year

The minimum pension drawdown rate will remain halved for another 12 months after the federal government announced an extension of the COVID-19 relief measure that was due to finish at the end of the month.

A joint announcement on 29 May from Prime Minister Scott Morrison and Superannuation, Financial Services and the Digital Economy Minister Jane Hume stated the extension would apply to 30 June 2022.

“As part of the response to the coronavirus pandemic, the government responded immediately and reduced the superannuation minimum drawdown rates by 50 per cent for the 2019/20 and 2020/21 income years, ending on 30 June 2021,” the announcement said.

“Today’s announcement extends that reduction to the 2021/22 income year and continues to make life easier for our retirees by giving them more flexibility and choice in their retirement.

“For many retirees, the significant losses in financial markets as a result of the COVID-19 crisis are still having a negative effect on the account balance of their superannuation pension.”

The 50 per cent reduction in the minimum pension drawdown rate, from 5 per cent to 2.5 per cent, was first announced by the government in March 2020 as part of a wider set of COVID-19 relief measures that also included early access to superannuation and a reduction in deeming rates.

The early access to superannuation measure ended on 31 December 2020 and no further announcements have been made regarding deeming rates.

Earlier this year, the SMSF Association said it expected the rate to return to pre-COVID-19 levels.

At that time, association deputy chief executive and policy and education director Peter Burgess noted the rate may still return to 5 per cent following a scheduled review by the Australian government actuary and a finding in the Retirement Income Review that retirees were not drawing down on their retirement savings.

Source: smsmagazine.com.au

SMSF statistics highlight post-COVID recovery

The ATO’s newly released March 2021 quarterly statistical report has revealed the total number of SMSFs will soon hit 600,000, with consistent growth seen across establishments and assets as the industry heads into a post-COVID recovery economy.

The ATO has released the March 2021 self-managed superannuation fund (SMSF) quarterly statistical report revealing the latest statistics on the SMSF sector.

The report shows that there are now approximately 597,396 SMSFs and an estimated 1,120,936 members. These figures point to overall growth in total fund numbers, which have increased on average by around 2 per cent each year over the last five years.

The March 2021 quarter saw more than 6000 new SMSF establishments showing continued growth compared to previous quarters whilst windups have also hit record lows with around 240 recorded. Fifty-three per cent of SMSF members are male and 47 per cent are female whilst 86 per cent of all SMSF members are 45 years or older.

Total estimated SMSF assets increased 3 per cent over the quarter, from $763 billion in the December 2020 quarter to $787 billion in the March 2021 quarter.

The top asset types held by SMSFs (by value) continue to be listed shares (26 per cent of total estimated SMSF assets) and cash and term deposits (19 per cent).

Asset allocations in LRBAS saw its biggest continued increase of around 7 per cent ever since its numbers stagnated during the December 2019-September 2020 period.

Non-residential and residential property also saw higher growth in asset allocations compared to December 2020 numbers.

Overseas assets have also seen an increase across the spectrum of shares, property and managed investments. Meanwhile, cryptocurrency assets continued to see a decline compared to the December 2020 quarter and haven’t seen an increase ever since June 2019.

In the new establishments recorded in the quarter, around 56 per cent of new SMSF members are male and around 44 per cent are female. Individuals aged 35-44 make up the majority of most of the establishments accounting for both male and female.

Meanwhile taxable income ranges of the members of SMSFs which were established during the March 2021 quarter show incomes around $100,000 to $150,000 to be the most common for members accounting around 18.5 per cent.

NSW, Victoria and Queensland continue to remain the top three areas for new funds established.

This comes as new data was also released by the Australian Prudential Regulation Authority showing total superannuation assets increased 3.1 per cent for the quarter and 13.9 per cent over the 12 months to March 2021 to hit a record high of $3.1 trillion.

Total contributions into the system remained broadly steady at $121.2 billion for the 12 months to March 2021, increasing 0.8 per cent compared to the previous year.

Total benefit payments were $18.3 billion for the March 2021 quarter following the conclusion of the Government’s temporary COVID‑19 early release of superannuation measure.

A more detailed overview of the ATO statistical report can be found here. 

Source: SMSF Adviser

ATO embarks on new SMSF research survey

The ATO has embarked on a new survey for SMSFs aiming to further gain a better understanding of the SMSF audience and market.

The new self-managed super funds (SMSF) audience market research survey launched by the ATO aims to target SMSF trustees and advisers to gain a better understanding of the SMSF audience through a profiling and segmentation research study.

Conducted with researchers Whereto Research, the research includes undertaking an online survey, interviews with SMSF trustees and advisers along with further group discussions with SMSF trustees and advisers.

With over 1 million Australians having made the decision to take control over their superannuation and set up an SMSF, SMSF Association technical manager Mary Simmons said the Australian government has recognised the need to find out more about this population.

“To better understand what motivates and influences SMSF trustees, the government has embarked on a new survey, using information from the ATO to randomly select existing SMSF trustees to participate,” Ms Simmons said in the recent SMSFA update.

“The survey is being conducted by an external research provider, Whereto Research, and some of your clients may have already received an invitation to participate.

“Having discussed the survey with the ATO, the SMSF Association can confirm that the survey is legitimate and that trustees should not be concerned.”

Ms Simmons said the motive behind the survey is to get a better understanding of the SMSF community to assist the ATO to develop targeted communication strategies to ensure key messages reach their audience.

“The confidential survey provides the ATO with important information about the SMSF sector and the questions asked are designed to gauge trustees’ understanding of SMSFs and some of the rules and get insight into trustees’ choice of information sources used to manage SMSFs,” Ms Simmons said.

“The ATO also wants to determine trustees’ preferred communication channels to keep abreast of changes and understand who trustees primarily rely on to support them with ongoing investment decisions, advice needs as well as reporting and compliance obligations.”

If advisers have clients that have been invited to take part in the survey, Ms Simmons noted that participation in the survey is completely voluntary and the information collected remains anonymous.

“The survey will take your clients approximately 15 minutes to complete and participants can nominate to partake in subsequent feedback sessions (optional),” she said.

More information on the survey can be found here.

Source: SMSF Adviser

Federal Budget 2021: Necessary super changes welcomed

Superannuation measures in this year’s federal budget have been welcomed as being not too intrusive, but introducing necessary changes that were considered overdue by the sector.

The changes, announced by Treasurer Josh Frydenberg last night, include an extension of the downsizer contribution scheme, the removal of the work test for people aged 67 to 74, an amnesty to allow people to exit legacy pensions and relaxing residency requirements for SMSFs.

SMSF Association chief executive John Maroney said the measures were welcome after “a few quiet budgets for the SMSF sector” and reflected changes sought by the industry body.

“In our 2021 federal budget submission, we advocated for reforms to the residency rules for SMSFs and for an amnesty period to allow SMSF members stuck in legacy pensions to convert to more conventional-style pension products, and we are pleased both measures are included in this year’s budget,” Maroney said.

“Regarding residency rules, we argued in our submission that the existing two-year safe harbour exemption under the central management and control test is too short in the context of modern work arrangements, where executives and other staff are often expected to commit to an overseas placement for more than two years, and that this period should be increased to five years,” he said, adding the extension was in the budget alongside the removal of the active member test.

Financial Planning Association (FPA) chief executive Dante De Gori also welcomed the non-disruptive nature of the measures and supported the work test, downsizer contributions and legacy pension changes.

“The FPA welcomes the government’s decision to introduce flexibility, but not substantial changes to superannuation. Superannuation should not be constantly tinkered with, a position the FPA has consistently held,” De Gori said.

Financial Services Council (FSC) chief executive Sally Loane said the government’s commitment to addressing legacy products, also an area of FSC advocacy, was pleasing, but the move could create other issues for pension holders.

“The ability to move out of legacy pension products, many of which are outdated and expensive, is a welcome move. However, the tax and social security settings will be the key factor [for] consumers and their financial advisers in determining whether to take up the scheme,” Loane said.

Other changes introduced as part of the budget included abolishing the $450 a month earnings threshold for the payment of the superannuation guarantee (SG), which was noted by the SMSF Association, FPA and FSC as a benefit to low-income earners.

Association of Superannuation Funds of Australia chief executive Dr Martin Fahy said this change and the government’s implicit commitment to increasing the SG rate to 12 per cent were important steps in providing adequate retirement savings, particularly for women and younger Australians.

“Australia’s superannuation system enables Australians to retire with dignity. With the legislated increase of the superannuation guarantee to 12 per cent, and a maturing superannuation system, we expect to see a greater proportion of retirees relying less on the age pension and more on their retirement savings,” Fahy said.

He said the removal of the $450 threshold will be beneficial to low-income and casual employees, many of whom are women, and would give them an entitlement that others already had as a right.

The Actuaries Institute also welcomed the removal of the $450 a month threshold, but was critical of the government for not defining the role of superannuation.

“The government has not leveraged the Retirement Income Review to make more impactful changes to the retirement incomes system, such as measures to help non-homeowners (renters) in retirement, in particular some of the most at risk of poverty in retirement – single female renters,” Actuaries Institute president Jefferson Gibbs said.

“The system also still lacks an overall objective for superannuation and its role in supporting retirement incomes.

“The institute urges the government to provide clarity on the purpose of superannuation to enable more substantive reforms to be sensibly made to improve the system.”

Source: smsmagazine.com.au

NALI, CGT & ECPI

Over the past few years, the SMSF industry has been heavily focused on the application of the new non arm’s length expenditure rules and working with the ATO to ensure the application of these rules to general expenses is pragmatic and does not result in a disproportionate tax outcome.

Yes, these are big issues for the industry and the SMSF Association continues to strongly advocate for more clarity, however they can overshadow other, equally important issues such as the interaction of the non-arm’s length income (NALI) rules with the capital gains tax (CGT) and exempt current pension income (ECPI) provisions.

Many just presume that a non-arm’s length capital gain is intended to cause NALI, even if the gain relates to an asset supporting a retirement phase income stream. This view is correct from 1 July 2021, however due to a technical deficiency in the law, the law does not currently operate this way for SMSFs with segregated pension assets (i.e. where specific assets of the fund are set aside to fund one or more retirement phase income streams).

Here’s where it starts to get technical so we will try to keep it as simple as possible.

The ordinary and statutory income an SMSF earns from assets held to support retirement phase income streams is exempt from income tax unless it is NALI.

The technical deficiency is that NALI only applies to ordinary income or statutory income and a capital gain per se, is neither ordinary income nor statutory income. However, a net capital gain is statutory income and so only a net capital gain can be NALI.

However, before a capital gain can become a net capital gain, a number of provisions operate. One such provision is s118‑320 of the ITAA97, which states that if the gain is made from a segregated current pension asset the gain is simply disregarded. Therefore, if the gain is disregarded, it cannot become a net capital gain and it cannot become statutory income. Ultimately, it cannot become NALI.

On 17 December 2020, Treasury Laws Amendment (2020 Measures No. 6) Act 2020 (Cth) received Royal Assent to amend this defect in the law. Subsection 118-320(2) was introduced to ensure that non-arm’s length capital gains in relation to segregated current pension assets are no longer disregarded and are treated as NALI.

Not only is the technical issue complex but there was also confusion relating to the date of effect of the new provision. If you are like many and rely on legislation websites such as https://www.austlii.edu.au/ or https://www.legislation.gov.au/, the amendment is already showing as being operative so you would think that a non-arm’s length capital gain made from a segregated current pension asset currently causes NALI. On the other hand, if you refer to the relevant explanatory material, you would conclude that the new provision only has effect from 1 July 2021.

So which one is it? In determining the date of effect, the SMSF Association sought clarification from the ATO and has received confirmation that s118-320(2) applies from the 2021-22 income year.

Effectively, this means that if a non-arm’s length capital gain is made by a segregated current pension asset before 1 July 2021, it does not cause NALI. If a non-arm’s length capital gain is made by a segregated current pension asset on or after 1 July 2021, it does cause NALI.

Let’s look at an example

A number of years ago, an SMSF acquired an asset on non-arm’s length terms. More specifically, the asset’s market value was $500,000 but the SMSF only paid $300,000.

The SMSF is fully being used to pay an account-based pension and the asset is a segregated current pension asset. On 22 April 2021, the SMSF signs a contract to sell the asset. The capital gain is disregarded and is not NALI.

However, if the SMSF signs a contract to sell the asset on or after 1 July 2021, the capital gain would not be disregarded and thus would cause NALI.

So, from 1 July 2021, where an asset has been impacted by the NALI provisions, any net capital gain will be taxed as part of the fund’s NALI component at the highest marginal rate. This includes, SMSFs that are paying a retirement phase income stream to one or more members, regardless of whether the fund is using the segregated or proportionate method to calculate their exempt income.

Naturally, in addition to non-arm’s length income, there are other issues that should still be considered, including:

  • general anti-avoidance provisions (ie, part IVA);
  • deemed contributions and excess contributions tax;
  • promoter penalty laws; and
  • SIS regulatory issues (eg, arm’s length rules etc).

Understanding the interaction of the NALI, CGT and ECPI provisions is complex at the best of times. Add a layer of uncertainty in relation to deficient law and it highlights the importance of seeking specialist advice to ensure other super and tax laws are not at risk of being breached.

Written by Mary Simmons, Technical Manager, SMSF Association 

SMSFs with collectables need to read the fine print

Got art, jewellery or cars in your collection? Watch out how they’re insured, where you store them and who uses them.

The rules around the holding of collectables and personal-use assets owned by self-managed super funds are quite straightforward – and have been for more than a decade. Yet confusion still reigns, especially with insurance.

Since July 1, 2011, the rules have required trustees of SMSFs to insure these assets within seven days of acquiring them in the name of the fund. The only exceptions are memberships of sporting or social clubs – and yes, these can be owned by SMSFs.

Unlike other forms of insurance, it’s not optional. The Australian Taxation Office wants the items to be insured to “protect” the fund’s assets and therefore the members’ retirement benefits. So, in case of a mishap where the asset is damaged, the fund is not financially exposed.

The ATO also insists the insurance is in the fund’s name to ensure assets are kept separately from the trustee’s other assets, thereby giving the process more transparency and greater integrity.

It all seems quite simple. Yet it’s surprising how much confusion still surrounds the insuring of collectables and personal-use assets, particularly from an audit perspective.

Written by John Maroney, CEO, SMSF Association

Super contribution and pension caps set to increase

For the first time in five years, the super contribution and pension caps are set to increase. Thanks to inflation and indexation, the cap on concessional contributions will increase from $25,000 a year to $27,500 for the 21/22 financial year.

Concessional contributions include the compulsory 9.5% super guarantee amount that your employer pays on your wages, plus any additional salary sacrifice contributions, plus any  amount you contribute and claim a tax deduction for. In 20/21, they are capped at $25,000 a year (you will pay tax at your marginal tax rate on any excess contributions).

The employer’s contribution rate of 9.5% is also set to increase, to 10.0% from 1 July, and then to 10.5% from 1/7/22, 11.0% from 1/7/23, 11.5% from 1/7/24 and finally to 12.0% from 1/7/25. The Government says that it is “reviewing its position” on the changes, but as they are already legislated and are LAW, it would need to introduce amending legislation into the parliament to stop the increases. With the ALP, Greens and some independent Senators vowing to oppose any Government action to stop the increases, there is considerable doubt it could get its amending legislation through the Senate. The most likely outcome is that it will decide that there are “better battles to fight” and the contribution rate will increase to 10% on 1 July.

The cap on non-concessional contributions will also increase, from $100,000 to $110,000 a year. Non-concessional contributions are amounts that you contribute to super from your own resources and for which you do not claim a tax deduction for. Unlike concessional contributions (which are taxed at 15% when they hit your super fund), there is no tax deducted on non-concessional contributions.

Persons who have high superannuation balances (currently defined as balances over $1.6m) are not entitled to make non-concessional contributions. With indexation, the ‘total superannuation balance’ limit, which governs this, will increase on July 1 from $1.6m to $1.7m.

This increase will also impact the ‘bring-forward’ rule. Under the ‘bring-forward rule’, if you are under 65 years of age (legislation has been introduced but not passed to increase this to 67 years) and your total superannuation balance is less than $1.7m, you can potentially make 3 years’ worth of non-concessional contributions in one year. With the non-concessional gap increasing to $110,000 from July 1, this means that you could contribute up to $330,000 into super in one hit. A couple could get $660,000 into super.

The increase in the ‘total superannuation balance’ limit from $1.6m to $1.7m will also increase eligibility for the government co-contribution and spouse tax offset.

On the pension side, the limit that controls how much of your super monies can be transferred to the “tax free” pension phase of super, the transfer balance cap, will be increased by $100,000 to $1.7m from 1 July. Persons who have already accessed their full cap of $1.6m won’t be eligible to contribute any more monies into the pension phase. Those who haven’t accessed any part of their cap (in other words, have never commenced a pension) will automatically get access to the higher limit of $1.7m. If you have started a pension but haven’t accessed the full amount of the cap, you will get a proportional increase. For example, if you started a pension of $800,000 under the old cap of $1.6m and had cap space of $800,000, post indexation, your cap space will increase proportionally to $850,000 (meaning that your transfer balance cap will now be $1,650,000).

For defined benefit pensioners, the income cap of $100,000 will increase to $106,250. As a result, some pensioners may see a small increase in their pension as the amount of tax being withheld by their super fund is reduced.

Unrelated to the indexation of monetary caps and limits is the end of a special Covid-19 relief measure. This saw the halving of the minimum annual pension payment that account based pension holders were required to take. From July 1, these will revert back to the pre-Covid levels: a minimum of 4% of your account balance if under 65 (for example, if the account based pension has a balance of $1,000,000, the minimum annual pension payment is $40,000); 5% of the balance if aged from 65 to 74; 6% if aged from 75 to 79; 7% if aged from 80 to 84; 9% if aged from 85 to 89; 11% if aged from 90 to 94; and 14% if 95 years or older.

Source: Switzer Daily

Downsizer contribution conditions clarified

SMSF members planning to make a downsizer contribution from the sale of their home will not be restricted as to the source of those funds and may instead transfer other assets of equal value into the superannuation, according to the SMSF Association.

In an update on the industry body’s website, SMSF Association technical manager Mary Simmons said the view that downsizer contributions could only be made from the proceeds of the sale of a home was incorrect and the organisation had sought clarity from the ATO on the issue of in-specie downsizer contributions.

Simmons said the association took that step after members expressed concerns about the regulator’s position on the matter stemming from statements in Law Companion Ruling 2018/9, which relates to contributing the proceeds of downsizing into superannuation.

“In particular, paragraph 62 suggests that if an individual is eligible to make a downsizer contribution, they can only make it as an in-specie contribution if they use the proceeds of downsizing to buy the asset they are contributing. This suggestion is incorrect,” Simmons said.

“The ATO recently confirmed to the SMSF Association that provided the downsizer eligibility criteria is met, there is no need to analyse how the contribution is funded, provided it does not exceed $300,000 or the total capital proceeds from the sale of the qualifying dwelling.

“This means that an individual can make a downsizer contribution as an in-specie contribution, provided the value of the asset is equal to all or part of the proceeds from the disposal of the qualifying dwelling.”

She gave the example of a couple in their 70s selling a home for $1.35 million and, having met the eligibility requirements to each make downsizer superannuation contributions of $300,000, they do so by transferring a portfolio of listed shares, which they already own individually, into their SMSF.

For the contribution to take place, the market value of the in-specie contribution of listed shares would be equal to $600,000 and an off-market share transfer form would be executed and given to the SMSF trustee within 90 days of receiving the proceeds from the sale of their home, she added.

“With the existing strict eligibility criteria that an individual must satisfy to be eligible to make a downsizer contribution, we are pleased that the ATO’s interpretation supports the intent of the law and does not see any mischief if the contribution is funded via an in-specie transfer of any asset(s) provided it is at arm’s length and permitted by section 66 of the Superannuation Industry (Supervision) Act.”

Source: smsmagazine.com.au